Analysts Expecting Large Corporate Earnings Rebound in 2021/2022

By Tom Burnett CFA

In its April 16, 2021 report, FACTSET reflects the growing analyst consensus for strong earnings growth in 2021 and 2022.   Looking at the S/P 500 Index, in particular, the forecast is for growth of 27% in 2021 and another 14% in 2022.  The Index earnings for 2020 suffered from the negative impact of the Covid-19 outbreak and the measures used to combat the infection.  The Index earnings for 2020 came in at $140, down 14% from 2019.  The consensus figure for 2021 is now $178 with the 2022 estimate at $203.   In its report for September 18, 2020, FACTSET disclosed an estimate of $166 for 2021.   Analyst optimism has raised that figure by more than 7% to get to the current $178 estimate.

The positive earnings momentum combined with continued low interest rates has pushed the S/P 500 earnings multiple to 23.2x on 2021 earnings, and 20.4x on 2022 forecasts.  These multiples are historically high as shown by the FACTSET average multiples which are 17.8x over the last five years and 15.9x over the past ten years.  Clearly, investors have taken an optimistic view of the economic recovery and its impact on corporate earnings over the next year and one half.   The earnings rebound is real, but investors must be careful not to overpay for the recovery and the expected earnings performance.

Tom Burnett CFA is Director of Research